Bangladesh has an impressive track record for growth and development. It has made great progress in reducing poverty and has grown steadily over the past decade. Based on the international poverty line of USD1.90 per person per day, it reduced poverty from 44.2% in 1991 to 13.8% in 2016/17. Sustained economic growth has also rapidly increased the demand for energy, transport and urbanisation.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

October 2018The opposition Bangladesh Nationalist Party (BNP) formed an alliance with other smaller opposition parties, creating the Jatiya Oikya Front (United National Front) to contest the next general election.

December 2018The next general election is expected to be held in December, but the date is still to be announced.

Note: Latest available direct data is 2015; direct data not available for 2016 or 2017 from Trade MapSources: Trade Map, Fitch SolutionsDate last reviewed: October 17, 2018

4.2 Trade in Services

Source: WTODate last reviewed: October 5, 2018

5. Trade Policies

In July 1978, Bangladesh joined the World Customs Organization and in January 1995 it became a member of the World Trade Organization (WTO).

Bangladesh used to benefit from preferential access to the US market through the GSP programme, but in June 2013 former President Barack Obama suspended Bangladesh's membership in view of the government's insufficient progress in securing the rights of Bangladeshi workers. The US government has provided Bangladesh with a 16-point action plan which, if implemented, will provide a basis for the reinstating of GSP trade benefits. The US is the single largest export destination for Bangladesh. As a least developed country, 97% of goods originating from Bangladesh enjoy duty-free benefits on export to US market. However, the country's main export items, garments, have not been included in this package despite comprising 95% of Bangladeshi exports to the US per year. As a result, Bangladeshi exporters face 15.62% tariff on export of apparel items to the US markets, although some competing countries such as China, Vietnam, Pakistan and India face far lower tariffs.

Bangladesh continues to impose high tariffs on imports, which increase costs for businesses, with an average tariff rate of 10.7%, rising to 25% for some finished products. In addition, a 4% infrastructure development surcharge is levied on almost all imports, as well as a VAT of 15%. Although some raw materials and capital goods imports are exempt from customs duties, these charges increase the difficulties of operating in Bangladesh.

Bangladesh and India's joint membership of regional free trade areas eases the flow of goods between the two countries, with India providing an important source of imports for Bangladesh. Dhaka has attempted to improve its economic relationship with India in recent years by reducing trade barriers and improving connectivity.

Bangladesh imposes an export ban on raw hides and wet blue leather. Only exports of finished leather and leather goods are allowed.

In August 2015, Bangladesh imposed a regulatory import duty of 20% on raw and refined sugar. The measure was initiated to protect local suppliers in times of falling global prices of sugar.

Sources: WTO - Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

Bangladesh and Sri Lanka expressed interest to sign a Free Trade Agreement (FTA) in March 2017 in an attempt to boost bilateral trade ties. The two countries are set to benefit significantly from the FTA as Bangladesh produces textiles, pharmaceuticals, cement, paper, electrical items and jute products that are high in demand in Sri Lanka and Sri Lanka is also an important transhipment hub for the region. The FTA is expected to be signed by the end of 2018.

In October 2018, Brazil and Bangladesh agreed to sign an FTA to boost bilateral trade. Brazil also seeks to form a Brazil-Bangladesh Chamber of Commerce and Industry to encourage private sector investors of both countries to enhance business communication. Exports from Bangladesh to Brazil are currently subject to duties of 35%. It is not yet certain when negotiations will begin.

Bangladesh has successfully negotiated several regional trade and economic agreements, including the South Asian Free Trade Area (SAFTA) and the Asia-Pacific Trade Agreement (APTA). Bangladesh has not ratified any bilateral FTAs. As a founding member of the WTO and as a Less Developed Country (LDC), Bangladesh has been an active advocate for LDC interests in WTO negotiations.

6.2 Multinational Trade Agreements

Active

SAFTA, comprising Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka: Apart from India, other developing Asian states are not key trade partners for Bangladesh, although this does ease regional trade flows. The agreement is an attempt to increase intraregional trade through the gradual dismantling of some tariff barriers, but it leaves out a large number of products denominated as sensitive, and it does not address non-tariff trade barriers. Intraregional trade has the potential to increase the existing trade by over 300%. The growing demand in the region for agricultural products creates an opportunity for exploring new avenues of intraregional trade and investments in this sector. Bangladesh has taken steps to strengthen bilateral economic relations with India by reducing trade barriers and improving connectivity.

EU-Bangladesh Cooperation Agreement - European Union (EU) countries are major export markets and businesses enjoy duty and quota-free access for most goods exports to the bloc under the 'Everything but Arms' agreement. The EU is Bangladesh's main trading partner, accounting for around 24% of Bangladesh's total trade in 2015. EU imports from Bangladesh are dominated by clothing, accounting for over 90% of the EU's total imports from Bangladesh. EU exports to Bangladesh are dominated by machinery and transport equipment (49%). From 2008 to 2015, EU imports from Bangladesh have almost trebled from EUR5.5 billion to EUR15.2 billion, which represents nearly half of Bangladesh's total exports. Thus, there will be increasing pressure on the government to improve working conditions in the garments industry as the EU will be closely observing Bangladesh. Several European importers have already come forward to help the country in improving safety features of readymade garment factories, which is a good sign for the country.

APTA - some 4,721 Bangladeshi products enjoy duty-free access in the Chinese market under APTA (in effect since May 2010). In 2013, Bangladesh again sought duty-free access for 17 more items. The country will have to grant duty-free access to Chinese products in its market if an FTA is signed between Bangladesh and China.

Under Negotiation

Bay of Bengal Initiative on Multi-Sectoral Technical and Economic Cooperation FTA (BIMSTEC FTA) - BIMSTEC is a regional organisation comprising Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal. Apart from India, other developing Asian states are not key trade partners for Bangladesh, although this agreement creates opportunities to increase regional trade flows. The organisation has been active since 2006. A tariff free zone is currently under negotiations. Once in place, the agreement is expected to further integrate the seven-nation area and aid in regional development.

The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with supervising and promoting private investment. The Bangladesh Export Processing Zone Authority (BEPZA) acts as the investment supervisory authority in export processing zones (EPZs). BEPZA is the one-stop service provider and regulatory authority for companies operating inside EPZs. Investments that are wholly foreign-owned, joint ventures and wholly Bangladeshi owned companies are all permitted to operate and enjoy equal treatment in the EPZs.

Some key sectors are reserved for government investment, such as defence equipment and machinery, forest plantation and mechanised extraction within the bounds of reserved forests, production of nuclear energy and certain media and security services. In addition, there are 17 controlled sectors that require prior clearance from the respective line authorities. These sectors include fisheries, banking, insurance and other financial institutions, power generation, supply and distribution of power in the private sector, minerals extraction, large-scale infrastructure projects, crude oil refineries, energy-intensive operations, transport services telecommunications and media.

The government's industrial policy favours manufacturing and labour-intensive industries using local inputs. Various subsidies and other incentives are available to different industrial ventures, primarily in export sectors and, to some degree, import substitution sectors. The government also provides loans at concessionary rates through state banks and government-owned development banks for exports, cottage industries and agriculture.

The Bangladeshi government is keen to attract more foreign direct investment and has set out an ambitious plan to build 100 special economic zones (SEZs) by 2030. In January 2017, the Bangladesh Economic Zones Authority had approved construction of four SEZs in the districts of Madaripur, Faridpur, Noakhali and Kishoreganj.

Under the Belt and Road Initiative, China intends to set up economic corridors in alliance with other countries - with one covering Bangladesh, India and Myanmar (i.e., the BCIM Economic Corridor). The Corridor will link India’s Kolkata with China’s Kunming, Myanmar’s Mandalay and Bangladesh’s Dhaka among the key points (among the key points). To this end, the Chinese government has pledged to finance multi-billion infrastructure projects in Bangladesh, including the construction of a 220 km oil pipeline in Bangladesh, which will reduce the time and costs of transferring and unloading imported crude oil to onshore facilities in the country.

The valued-added tax (VAT) rate on exports is zero. For companies that only export, import duties are waived for imports of capital machinery and spare parts. For companies that primarily export (80% and above) an import duty rate of 1% is charged for imports of capital machinery and spare parts identified and listed in notifications to relevant regulators. Import duties are also waived for EPZ industries and other export oriented industries for imports of raw materials consumed in production. Investors benefit from duty free import of construction materials, capital goods and certain raw materials.

Exemption of double taxation subject to Double Taxation Agreement.

Full repatriation of capital.

EPZs Mongla, Ishwardi, Uttara – specific incentives

Income tax exemption of 100% for first three years, 50% for next three years, and 25% for the seventh year

Income tax exemption of 100% for first two years, 50% for next two years, and 25% for the fifth year

Economic Zones: Mongla, Sirajganj, Anowara, Mirershorai, Maulvibazar

- Income tax exemption of 100% for first two years, falling to 80% in the third year, and reducing by 10% increments each following year, to 10% in the 10th year

- Exemption from dividend tax

- 50% exemption on stamp duty for leasehold land/factory space

- 50% tax rebate on income tax of employees for five years

- Exemption from capital gains tax

General incentives

- 50% tax rebate on export income

- Tax holidays of five to seven years for new enterprises in textiles, pharmaceuticals, plastics, ceramics, iron and steel, fertilisers, computer hardware, petrochemicals, agricultural and industrial machinery.

- Exemption from income tax for up to 15 years for new projects in the power sector. Cash subsidies are offered to firms in the furniture sector (at a rate of 15%), plastic products (10%), textile products that are destined for eurozone markets (4-6%) and fruit and vegetable production (20%) to help improve their global competitiveness.

- Independent non-coal fired power plants (IPPs) commencing production after January 1, 2015 are granted a 100% tax exemption for five years, a 50% exemption for years six to eight years, and a 25% exemption for years nine to 10 years. For Coal-fired IPPs contracting with the government before June 30, 2020 and COD before June 30, 2023, the tax exemption rate is 100% for the first 15 years of operations. For power projects, import duties are waived for imports of capital machinery and spare parts.

The Bangladeshi Board of Investment (BOI) stipulates that private sector industrial enterprises desiring to employ foreign nationals are required to apply in advance. Foreign nationals can normally be employed for jobs for which local personnel are not available and the number of foreign employees should not exceed 5% of total employees (including management staff) in the industrial sector and 20% in the commercial sector. In addition, foreign nationals are initially considered for a term of only two years, after which employment may be extended dependent on BOI approval.

9.2 Visa/Travel Restrictions

All foreign nationals seeking paid employment in Bangladesh must be in possession of a valid work permit - the tenure of a work permit for a foreign worker is generally two years. Foreign citizens/nationals of India, Pakistan and South Korea travelling to Bangladesh by air with a valid visa for 90 days or more are required to register at the airport.

ECONOMIC RISKBangladesh's low economic risk score reflects its generally high level of inflation and long-running fiscal deficit. Bangladesh's index could improve if the government introduces pro-business and pro-investment policies, while reducing inflation and the budget deficit. Remittances from overseas workers help to cover the substantial goods and services trade deficit.

OPERATIONAL RISKBangladesh's large population, competitive labour costs and proximity to key source markets are significant pull-factors for businesses looking to set up labour-intensive operations. However, Bangladesh's low operational risk score reflects its underdeveloped transport sector as well as severe barriers to trade and investment.

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